Source: Unsplash
Yes, Netflix can be free while also being the new cable bundle
I have written extensively about Netflix and its possible free (ad) tier.
Fast forward to today, the company has close to 40 million subscribers on its ad tier. It’s worth a short recap of what happened:
1/ Netflix’s announcement that its ad-supported tier has reached 40 million global monthly active users is an impressive milestone, but it also raises concerns about the sustainability and true value of this growth. The sharp increase from 15 million users last November to the current figure suggests rapid adoption. However, the distinction between monthly active users (MAUs) and paying subscribers highlights a potential overestimation of the tier’s actual financial impact. MAUs include all account users, not just those directly contributing to revenue, suggesting that the headline number might not fully reflect the economic reality.
2/ The fact that the ad-supported plan accounts for over 40% of all new Netflix sign-ups in markets where it is offered indicates strong initial interest. Yet, this statistic could mask deeper issues. The swift uptake could be driven by cost-conscious users switching from higher-priced plans rather than entirely new customers joining the platform. This potential cannibalization might not lead to a net increase in revenue, undermining the tier’s profitability. The lack of disclosed actual subscriber figures or revenue data further complicates the assessment of the ad-supported tier’s true success.
3/ Netflix’s claim that over 70% of its ad-supported users watch for more than 10 hours a month, 15 percentage points higher than the nearest competitor, is compelling but might be misleading. While engagement metrics are important for attracting advertisers, they do not necessarily translate into sustained long-term growth or loyalty. High engagement figures could be a result of the novelty factor, which might wane over time. Additionally, the reliance on Nielsen data, which has its own set of limitations and criticisms, could skew the interpretation of these engagement levels.
4/ The introduction of a new in-house advertising technology platform and the emphasis on live events, like the upcoming Jake Paul vs. Mike Tyson fight, suggest Netflix is investing heavily in diversifying its ad offerings. While these initiatives could attract significant advertising dollars, they also introduce new complexities and risks. Live events and sports content, for example, come with high production costs and variable audience interest, making it a volatile revenue stream. The success of these ventures is far from guaranteed and depends on execution and audience reception.
5/ Moreover, Netflix’s acquisition of streaming rights for NFL games, reportedly at a cost of less than $150 million per game, is a strategic move into live sports content. While various analysts view this positively, seeing it as a way to bolster the ad business, it also underscores the high stakes and significant investments required to compete in this space. Given that Netflix has spent similar amounts on original movies, the question arises whether the return on investment for live sports will match or exceed that of its blockbuster films.
6/ Finally, I suspect that many of those 40 million ad-tier subscribers are those who were affected by password sharing.
Concluding, Netflix has won the streaming war and it looks like they are becoming the new cable bundle, hence the stock price below. 40 million, Passwords
